Brands must act to stop cannibals eating them up

If you are paying more than this, it’s a rip-off!” With that unsubtle advertising slogan, telecoms upstart Oystel has been berating former monopolist BT over the past few weeks for its international call charges. According to Oystel, BT’s charges are sometimes five times higher than customers really need to pay.

Oystel is not alone. It is one of a zoo of new competitors snarling at BT. And telecoms is just one of a burgeoning range of sectors where brand incumbents are being accused, to use Oystel’s delicate terminology, of ripping their customer off.

Mobile phone operators’ pricing strategies are now controversial enough to arouse the interest of the European Union, which is worried that returns on capital like Vodafone’s recent 66 per cent means competition isn’t as stiff as it should be.

In the car market, the EU is also returning to the issue of differential car prices, wanting to know why the UK price of some cars is 50 per cent higher than in some other parts of Europe. With airlines, European players like easyJet and RyanAir argue that the prices charged by market leaders, like British Airways, proves they act too much like a cartel. easyJet takes pleasure in depicting BA as a smug fat cat in its ads.

With financial services, Barclaycard is being forced to respond to a host of new players, all offering much lower interest rates on outstanding balances.

In the PEP market, newcomers like Virgin have trumpeted the honesty and modesty of their charges, compared with traditional providers’ complex array of commissions and fees. Even those selling niche products, such as mortgage protection insurance, now accept that commission rates of 40 per cent and numerous small print exclusions cast them in the role of protecting sellers’ profits rather than buyers’ homes.

There’s more. The gas and electricity market is now crawling with new outfits challenging traditional monopolies with deep discounts, while in consumer goods, the supermarkets’ crusade against big brands continues. Last week, Asda was again advertising its contention that retail price maintenance (RPM) for over-the-counter (OTC) medicines is helping keep the price of branded products exorbitantly high. Rival supermarket Tesco has, meanwhile, been playing commercial (and legal) cat and mouse with fashion brands like Nike, Adidas, Levi’s and Calvin Klein, sourcing them on the grey market and selling them at much lower prices.

Of course, price wars and discounting are as old as the marketing hills. But what’s happening now is different. Increasingly, the focus of the battle is moving beyond traditional issues relating to whose product and brand is superior, to whose brand is most trustworthy, has the “right” motives, and is truly “on my side”.

This is adding a new element to brand warfare. The price a company charges for its products is increasingly seen, not as a matter of pure calculation (“for my needs, is brand A better value for money than brand B”), or even image (for example, high price = “exclusive” or luxurious), but as an acid test of its attitude towards its customers. And a growing number of brands are discovering the potential of campaigning on this issue.

Their secret weapon is doubt. Take Tesco’s recent antics in the grey market (MW February 5). Every time it puts Nike shoes up for sale at a massively discounted price, it sows seeds of doubt in the minds of Nike customers that, at root, this brand is just a rip-off. For Tesco, that’s all that’s needed, because the real subject is not Nike but Tesco. The real boost Tesco gets out of selling Nike at extra-low prices is not the extra volume or margin it might gain but the messages it sends about the Tesco brand as a consumer champion, “on our side” – in stark contrast to brands such as Nike which, it clearly implies, are not.

This is nothing less than brand cannibalism, where one brand seeks to enhance its reputation by devouring another’s; where one brand seeks to deepen and enhance its relationship with its customers by eating into the relationship another brand has with them. Price isn’t the sole issue. It is merely one weapon the brand cannibal uses to corrode consumers’ trust in his victim. Which leaves the victim fighting not just market share or even brand image, but for the brand’s very credibility.

Brand cannibal tactics are unlikely to be a passing fad. They are the product of two unstoppable developments. The first is deep structural shifts now sweeping most markets. These include deregulation, internationalisation (“how come I can buy Levi’s in the US at half the price in the UK?”), and the emergence of new low-cost business models such as “direct” operators who cut out the middleman.

Secondly, they mirror a growing philosophical debate within the marketing profession. For many marketers, it has long been an unquestioned assumption that customers are something you make money out of.

Dixons’ Sir Stanley Kalms is an eloquent exponent of this line. “You mustn’t treat people like children,” he said in a recent interview. “The business should assume the consumer is intelligent and can resist the argument. Therefore the price you offer to him is the highest price that he is prepared to pay. I am not worried about the fairest price or the best price. I put a package together to get the highest price. That is how I create profit.”

The alternative view is marketers make their money, not out of customers, but with them.

This is the logic behind relationship marketing.

The brand cannibal’s message is that those with the former mentality can never really be on the consumer’s side. Some, such as Oystel are extremely crude in their approach. Others, such as Tesco, are extremely sophisticated.

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